Investors have been hesitant to buy Nvidia’s stock until it dropped over 21% from its peak, a rare move in recent times. This caution stems from increasing concerns about AI spending, especially following DeepSeek’s claim that it used fewer chips for its AI model.
Gene Munster, managing partner at Deepwater Asset Management, remarked that there’s a growing anxiety about the sustainability of the current market trend, suggesting that DeepSeek’s news served as a wake-up call. The market sentiment rapidly shifted from confidence to vulnerability, impacting Nvidia as it prepares for its earnings report on February 26. Unlike the last two years, when quarterly results were met with optimism and high stock prices, Nvidia now faces skepticism from investors questioning future growth. Morgan Stanley analysts, led by Joseph Moore, highlighted that the recent negative stock response has become a significant concern. They noted a prevailing sense of cynicism among investors, suggesting that while revenue growth could ease some worries, it remains uncertain.
Investor confidence is waning as Nvidia is compared to previous quarters of extraordinary growth, complicating year-over-year assessments. Bloomberg estimates predict a 73% revenue increase for Nvidia, down from 94% last quarter and significantly lower than the 265% growth from the same period last year.
Despite the pessimism, some analysts see this as a buying opportunity. Evercore ISI, led by Mark Lipacis, upgraded Nvidia to a tactical outperform rating, suggesting that the situation created by DeepSeek could benefit investors. With earnings results just weeks away, there is potential for recovery. The recent selloff has made Nvidia’s valuation more appealing, with shares trading at around 30 times forward earnings, compared to a five-year average of over 40 times. However, the lack of aggressive buying indicates that the stock remains precarious ahead of the earnings report, particularly if the results do not meet high investor expectations.
If Nvidia underperforms, shares may stagnate until later in the year, according to Ivana Delevska, chief investment officer at SPEAR Invest. She noted that concerns about the company’s new Blackwell chips are also dampening investor enthusiasm. The launch has faced challenges due to production issues and supply shortages, leading to questions about whether Blackwell can deliver the anticipated growth amidst these cost concerns.
